Sunday, January 29, 2012

There's no denying that this gold chart looks pretty bullish. After a six month correction, GLD has broken out and targets the low $200's (new all time high). This isn't terribly surprising because ANYTHING priced in US dollars has rallied lately and gold was well positioned for a technical move up. This action comes as GLD nearly confirmed a new primary downtrend with the 50 dma coming close to crossing the 200 dma (might still happen). So long as GLD holds above ~$162 the trend is bullish. However, if GLD trades below that level in the next week or two, I'd expect things to unravel extremely fast. Deflation or more inflation?

6 comments:

Gold will blow through 2,000 this year. 10-1 there will be a QE3 from Bernanke, more QE from the BOE and QE from the ECB in everything but name. Gold is a direct play on the loss of fiat currencies - 2150 is my prediction.

Eh, I'm definitely no expert on precious metals but there are some key differences I see. Silver, while much cheaper than gold per ounce, is also significantly more abundant in the earth's crust (~30:1). However, silver has many more industrial uses and so is more closely tied to the global economy. Gold is really its own asset class that rises and falls on the whims of investors. People say its an inflation hedge or a safe haven but really its just about supply and psychology driven demand. For the long run (ie. retirement savings), I'd go with gold (for a small portion of my portfolio) because its less volatile than silver and the world is built on fiat currencies. Paper gold versus physical gold doesn't bother me, liquidity is important, so I'd prefer futures and/or etfs over coins.

But generally speaking, I would make any investment decision based primarily on the chart. With a multi-year time frame, gold looks bullish, silver looks bearish.

I should note that Tim Knight, who's technical analysis I highly trust, makes a pretty strong argument that gold is a short here. He's looking at the confluence of multiple long term trend lines, seems plausible. Skip to about 9:40 in his latest video:

http://slopeofhope.com/2012/02/ursa-morta.html

I am not compelled to have a position either way at the moment, but the benefit of doubt lies with the bulls imho.

OK, thanks P, I made the two comments above so appreciate your feedback. Agreed that Gold is really a separate asset class, and its performance has an inverse correlation to confidence in fiat currencies. Thanks again!